by David Zanze 

In the traditional prescription drug marketplace, costs can be controlled and managed by a self-funded employer. Medications that are used to treat common ailments are more prevalent and spread across a large population — the more people use a drug, the easier it is for manufacturers to keep costs down. Additionally, traditional medications often have a generic alternative that provides the same level of treatment for less cost. Specialty drugs, on the other hand, are used for treating rare, difficult or chronic conditions. They can be unique to the marketplace and be 10 times more expensive.

There is a huge pricing differential between the average cost of traditional and specialty drugs. This is because the unit prices for individual specialty medications are typically high. For example, Solvadia, a new specialty pharmacy drug for treating Hepatitis C, costs approximately $28,000 per month and $84,000 for the full 12-week treatment (Standard treatment also includes the drugs Pegatron and/or Ribaviran).

Today, specialty pharmaceuticals represent one of the fastest growing areas in health care with these medications accounting for approximately 25% of total drug spending in the United States. Some experts predict that spending to quadruple in the next six years. The FDA has been approving specialty drugs at a remarkable rate; last year, 17 of the 25 drugs approved by the FDA were specialty medications. This year, the FDA approved nine specialty drugs in the first quarter. The FDA is expected to continue approving specialty drugs in higher volumes, with some estimates predicting 70% of top-selling drugs to be specialty medications within the next four years.

Because the drug approval process can take 12 years, it can be quite costly. Most drug manufacturers must make back their costs for research and development within the first 12 to 18 months of putting the drug on the market, forcing these high costs onto the consumer. Lowering costs is challenging because of the many players in producing and setting the pricing of specialty drugs. There are manufacturers, distributors, providers, and health and pharmacy benefit plans, many of whom have a stake in keeping distribution and administration costs high. Additionally, because specialty drugs are utilized by only a small subset of patients, lower demand can cause unit prices to be astronomical for complex medications.

Self-funded employers have unique challenges determining how to manage and administer specialty drugs for their plan population and how those costs should be distributed. However, self-funding also provides multiple opportunities to lower or limit specialty drug spending. At each stage of administering specialty drugs, there are opportunities to reduce costs and ensure the best outcomes by tailoring your approach with the help and services provided by your PBM.

Your PBM Can Help!

The best way a self-funded employer can manage specialty drug spending is through a partnership with a trusted pharmacy benefit manager (PBM). A PBM manages a pharmacy benefit plan for self-funded employers. Its primary role is to determine where, how, why, and at what costs drugs should be administered to participants. You and your client should work closely with a PBM to design a pharmacy plan that balances effectiveness with cost. A PBM can help your client estimate drug spending and negotiate the lowest rates for pharmaceutical services, specifically when it comes to specialty medications. Many PBMs have experience dealing with the specialty pharmacy industry and can provide insight for implementing solutions that meet their needs at the lowest possible cost, in addition to providing the following critical services:

Drug Utilization Management

Good management and administration are at the center moderating specialty drug costs; a recent report estimates that $9 billion dollars will be spent on unnecessary specialty medications over the next year. This is money no self-funded employer wants to leave on the table, particularly for drugs that are not doing anything to make employees healthier.

Many PBMs partner with specialty pharmacies and are able to educate employers about their options, which drugs have proven to be the most effective, and offer cheaper alternatives wherever possible so your clients can predict potential costs and make educated plan decisions.

Some specialty drugs are unique in that they require special handling or need to be administered in a specialized setting. Although some medications can be self-administered at home, many drug therapies are administered in a hospital, outpatient facility, or home health setting. There can be huge pricing discrepancies based on site administration. For example, some chemotherapy drugs require special administration in a hospital setting, but specialty drugs like Soliris, used to treat complex blood and kidney disorders, can be administered in a hospital or a physician’s office, with a hospital costing twice as much. Hospitals are free to set their own prices and are therefore among the most expensive care sites for administering specialty drugs. To add to that, many specialty drugs require specific administration in forms from intravenous infusions or injections to self-injections and oral medications.

A PBM, with its partnered specialty pharmacies, can assist self-funded employers by monitoring the most expensive administration sites and drug forms to ensure that they are being managed and used when only absolutely necessary. Specialty pharmacies usually keep medication costs down by focusing on the use of specialty drugs, the setting of drug administration sites and by purchasing specialty drugs in large quantities, providing greater control over drug pricing.

Patient Care Management

Another way for your client to help reduce the cost of specialty drugs is by developing adherence programs that closely monitor drug intake and measure the effectiveness of drugs to limit the need for catastrophic care. Your PBM, in partnership with its specialty pharmacies, tends to have the highest adherence rates and can provide care management programs that educate patients about the drugs they take, which also include emphasizing the continuous use of prescription drugs, and checking in with patients at regular intervals to make adjustments to their drug regimen as needed. Care management also helps ensure that patients don’t receive a specialty drug until it is determined the best possible treatment. Instead of allowing a patient to take the most expensive drug outright, a care management team will present alternatives and work with patients until a suitable regimen is reached. A PBM should also have quality systems for recording and maintaining regular information about the patient’s interactions with specialty drugs. This allows patients who are not responding to drug therapies to be identified and their treatment to be adjusted at a potential cost savings to your client.

Additionally, when a patient needs to refill a specialty drug, a care management team can ensure that the patient checks in with their pharmacist or other health care practitioner who can ask questions, monitor refills, and ensure that the patient is not experiencing adverse side effects. This can help reduce the need for more invasive treatments down the road. Your PBM can also confirm that a health care practitioner contacts patients who do not refill medications or are prone to lapses in their drug regimen. This translates into potential savings for employers and patients since these services help manage treatment options and prevent treatment from becoming more costly.

Realigning Drug Incentives

Your PBM can help provide strategies that align medication costs and incentives to be beneficial for your client, ultimately, the patient. PBMs do this by negotiating discounts and drug costs with partnered specialty pharmacies. Traditionally, drug companies provide incentives to doctors and pharmacies for using a particular drug or treatment method, but PBMs can help balance this by providing incentives to specialty pharmacies for using appropriate treatment plans that emphasize best cost and efficacy for a given disease state. In addition, PBMs can help self-funded employers structure their drug formulary so that it incentivizes patients to look at the variety of drug administration options before beginning a specialty drug regimen.

Understanding the factors that affect the costs of specialty medications and enlisting the right PBM to provide service and insight into the prescription drug marketplace is the best way to manage specialty drug costs. A quality PBM can help target appropriate treatment alternatives, manage utilization and drug administration, ensure adherence and coordinate care so that your client’s pharmacy benefit costs don’t become a bigger financial burden than necessary.

As the specialty drug marketplace continues to grow and produce challenges for self-funded employers, your PBM will be there to help safeguard your client’s business from paying exorbitant amounts in unnecessary or poorly administered specialty medications.

With all this said, specialty drugs do a lot to help make the lives of patients better. They have turned many diseases that were once considered terminal into manageable conditions that can be treated and even cured with the right treatment plan. By utilizing a PBM, your clients can provide the right treatment that is also the most cost effective for themselves and their employees.


David Zanze has over 30 years’ experience serving as a leader and innovator in the health care industry. He is the president of Pinnacle Claims Management Inc., an all-inclusive third party administrator (TPA), and Pinnacle Rx Solutions, a pharmacy benefits manager. Both companies offer competitive, cost efficient benefits administration and claims processing in tandem with the latest technology in the self-funded marketplace. Pinnacle also provides administrative support for Covered California’s Small Business Health Options Program (SHOP) and assistance for the Covered California Certified Insurance Agent community. For more information call 866-930-7264 or visit to learn more.